Bad news!
Consumer prices in the US rose at a brisker-than-expected rate in January, decidedly cruel data foisted upon otherwise happy markets showed.
Core price growth was 0.4% last month, the BLS said Tuesday. That was the warmest MoM reading since May, and came as a bitter disappointment for investors who might’ve mistaken benign annual revisions released last week as something akin to an all-clear.
On a 12-month basis, core CPI rose 3.9%, two tenths hotter than consensus expected and unchanged from December’s annual rate.
The headline CPI series likewise printed above estimates, rising 0.3% from December and matching the highest guess from nearly six-dozen economists. On a YoY basis, the all-items gauge rose 3.1%. The market wanted 2.9%.
The breakdown wasn’t especially encouraging. Grocery prices, for example, rose 0.4% in January, the quickest in a year.
Electricity prices jumped 1.2% from December, the most pronounced monthly gain since August of 2022.
Fortunately for consumers, the energy index fell a fourth month thanks to another drop on the gas gauge, but energy services was another story.
For its part, the shelter gauge rose 0.634% last month from December. That’s problematic. I assume there’s some statistical nuance behind the big jump, illustrated rather poignantly below.
Outside of the May 2022-February 2023 period, January’s MoM increase on the shelter gauge was the hottest since January of 1991.
The OER print was likewise warm, at 0.56%, but the rent of primary residence gauge posted its smallest MoM gain since August of 2021. Again, there are surely some distinctions and niceties that need expounding.
Other highlights from the release included a very large MoM gain on the medical care services index, another 1% MoM increase on the transportation services gauge and, panning out, a huge jump in the MoM pace of the overall services less energy index, which rose 0.66% in January, the most since September of 2022.
Worst of all, the core services ex-shelter print (so, the CPI-derived version of the “supercore” measure the Fed’s watching for evidence of durable underlying disinflation) rose a scorching 0.70%, double December’s monthly pace, and the most in 16 months. The same measure stripping out rent and OER rose a very uncomfortable 0.85%.
I don’t want to overstate the case, but this release was quite concerning if you’re in the soft landing camp. The CPI update suggests robust spending, hiring and consumer sentiment are indeed feeding price pressures. (Who knew, right?)
I assume this goes without saying, but: You can forget about a March rate cut. There’s no chance of that now. February’s jobs report would have to show a massive (existential) decline to put next month’s meeting on the table for a first cut. If the balance of this month’s top-tier data looks anything like the CPI release, you can forget about a May Fed cut too.
